NZD Strengthens on Domestic Data and RBNZ Hike Expectations
The New Zealand Dollar (NZD) has strengthened against major currencies, while local bonds underperformed. According to Brown Brothers Harriman's (BBH) Elias Haddad, this is due to domestic data improving and expectations for further Reserve Bank of New Zealand (RBNZ) rate hikes.
The ANZ July business outlook survey indicates ongoing Gross Domestic Product (GDP) recovery, with above-target inflation and firmer growth supporting the expectation of additional RBNZ rate hikes. The survey showed a 19.5-point increase in business confidence to a five-month high of 56.1, while activity outlook rose 12.4 points to a five-month high of 49.3.
The swaps curve is pricing in 60bps hikes by year-end and a total of 100bps of tightening over the next twelve months to 3.50%, near the top of the RBNZ estimated neutral range (2.20%-4.10%). This supports the NZD, as it argues for additional rate hikes.